The Common Element on All Sub-prime Rescue Packages: More Federalism

Beginning with the Civil War the federal government has more or less followed a pattern of dealing with financial crises by expanding the role and power of the federal government.  With each new financial crisis we get new legislation that creates new prohibitions and new agencies to deal with those prohibitions.  Everyone in the federal government with a remedy for the sub prime mortgage loan mess has, as part of their package, a similar part -- a move by the federal government into what has been traditionally left to state law and state enforcement authorities.  Mortgage lending has traditionally been a creature of local contract law and local foreclosure laws;  lending brokers have been traditionally controlled by local real estate laws.  So yet another traditionally local area of the law is about to be federalized.  The costs of increased federal regulation rather than local regulation are no discussed anywhere in the press or in the press releases of the reformers.  Yet the costs are significant.  Local law may be better.  Local authorities are closer to local problems and local authorities compete with each other for sensible legal systems that attract investment (the competition produces experimentation and innovation in the rules).  A major after-effect of the sub-prime reform efforts will be another stop towards a more powerful central government.